Invest
Parents ‘strongly discouraged’ from going guarantor
Helping adult children get on the property ladder by going guarantor is a “real no-no”, a wealth management firm has warned.
Parents ‘strongly discouraged’ from going guarantor
Helping adult children get on the property ladder by going guarantor is a “real no-no”, a wealth management firm has warned.
Speaking in Sydney recently, HLB Mann Judd’s wealth management partner Jonathan Philpot told journalists that a key theme for 2018 is “making smarter financial decisions”. He highlighted prudential lending to children as one of the main aspects of this.
He said that one of the main things to remember is “definitely don’t act as guarantor for the loan, or put your own home on the line as security”.
Explaining that he’s having more conversations with parents eager to help their kids out as the property market grows in price; he said that gifting funds – while apparently the easiest option – is also a risky move.
“Often I hear people saying, we'll give our child $50,000-$100,000 to help them get in [to the market] and they simply want to gift it to them,” he began.
“[However] when I start talking through that with them, and find out a little bit more about where the child is; is the child in a relationship, are they single … how stable is the relationship?
“[For the parents] it often comes down to, I would actually like to protect this money that I’m giving to my child a little bit more.”
He said one way to do this was to write up a formal loan document. Mr Philpot said the agreement doesn’t need to have an interest component to it; rather it’s a safe-guard against potential relationship breakdowns.
“[It’s] just a signed loan agreement saying, yes we've given our child $50,000 there. It's in place so that if anything was to go sour in the relationship, then obviously the child's not having to give half of it to their ex-partner.”
He called this the “smarter way of doing it”.
Continuing, he acknowledged that while parents may feel emotionally obliged to go guarantor on the child’s loan, he “strongly” discourages them from doing so.
Parents may also be approached to become guarantors for business loans. Again, he said that is a “real no-no”.
“If the banks don't feel comfortable giving them loans, I try to encourage the parent not to,” he said.
“Obviously you want to see some runs one the board, and that they [the children] are able to support loans and everything. [There] is a point in time where it does make sense to be helping out the children getting into the market, but it's how you do it that can be improved often.”
According to recently released Westpac research, 6 per cent of Baby Boomer parents have agreed to be a guarantor for their childrens’ home loans, while 10 per cent loaned and 12 per cent gifted.
One-quarter of Baby Boomers liked the idea of going guarantor in the future, while 41 per cent were willing to gift money and 35 per cent were willing to loan the money.
Property
ANZ now expects house prices will end the year lower
With higher interest rates on the horizon, the bank is forecasting larger house price declines than previously expected. ...Read more
Property
Which capital cities are most attractive to property investors?
A new survey has suggested that investor attention is shifting away from Australia’s two largest capital cities. ...Read more
Property
Market uncertainty fails to discourage foreign property investors
While interest from foreign investors in Australian property has remained strong, HLB Mann Judd warned that tax increases could see demand shift to other markets. ...Read more
Property
Regional renters forced to spend more of their income than ever before
Renters in regional areas are spending nearly as much on rent as home owners are spending on mortgage repayments. ...Read more
Property
Aussie home buyers now need to save for over 11 years for a deposit
Since early 2020, the time needed to save for a deposit has increased by more than two years. ...Read more
Property
HSBC forecasts 2023 house price decline of up to 10%
The firm had previously predicted a modest rise for house prices next year. ...Read more
Property
Perth house prices continue climbing to a record high
While growth may have come to an end in Sydney and Melbourne, Perth house prices are still on the rise. ...Read more
Property
Stamp duty significantly slowing path to purchase for FHB
Saving for a home takes years for the typical first-time buyer. In Australia’s largest cities, as much as two years are spent simply building up the funds to pay the cost of stamp duty, according to...Read more
Wrapping up an eventful 2021
Listen now
What Omicron means for property, and are units right for first-time buyers? What is equity crowdfunding? Are industry super funds tapping into member funds to save their skins?
Listen now
Will housing affordability improve in 2022? Will buy now, pay later become the norm? Why are Aussies staying in failing super products?
Listen now
Who really benefits from crypto ETFs? How will the RBA respond to rising inflation? Could a mandate help address unpaid super?
Listen now
Property
ANZ now expects house prices will end the year lower
With higher interest rates on the horizon, the bank is forecasting larger house price declines than previously expected. ...Read more
Property
Which capital cities are most attractive to property investors?
A new survey has suggested that investor attention is shifting away from Australia’s two largest capital cities. ...Read more
Property
Market uncertainty fails to discourage foreign property investors
While interest from foreign investors in Australian property has remained strong, HLB Mann Judd warned that tax increases could see demand shift to other markets. ...Read more
Property
Regional renters forced to spend more of their income than ever before
Renters in regional areas are spending nearly as much on rent as home owners are spending on mortgage repayments. ...Read more
Property
Aussie home buyers now need to save for over 11 years for a deposit
Since early 2020, the time needed to save for a deposit has increased by more than two years. ...Read more
Property
HSBC forecasts 2023 house price decline of up to 10%
The firm had previously predicted a modest rise for house prices next year. ...Read more
Property
Perth house prices continue climbing to a record high
While growth may have come to an end in Sydney and Melbourne, Perth house prices are still on the rise. ...Read more
Property
Stamp duty significantly slowing path to purchase for FHB
Saving for a home takes years for the typical first-time buyer. In Australia’s largest cities, as much as two years are spent simply building up the funds to pay the cost of stamp duty, according to...Read more
More articles
Website Notifications
Get notifications in real-time for staying up to date with content that matters to you.
